Navy Contractor Confesses to Scandal Involving Fake Records and Overcharges

Navy Contractor

A significant U.S. Navy shipbuilder has admitted to a major fraud scheme that left taxpayers and national security at risk.

At a Glance

  • Austal USA LLC pleaded guilty to financial accounting fraud and obstructing a Defense Department audit.
  • The company will pay $24 million to settle the investigation by the Justice Department.
  • Austal USA is a subsidiary of Austal Limited.
  • The case involved coordination with the U.S. Securities and Exchange Commission (SEC).
  • Austal will implement a compliance and ethics program with an independent monitor for three years.

Austal USA’s Guilty Plea

Austal USA LLC, a prominent shipbuilder for the U.S. Navy and Coast Guard, has admitted to engaging in financial accounting fraud and obstructing a Defense Department audit, according to the Department of Justice. This admission comes after the company engaged in a fraudulent scheme from 2013 to 2016, during which it falsified financial records, inflated expenses, and misrepresented construction materials to deceive auditors and shareholders.

Austal USA’s fraudulent activities resulted in a significant legal fallout. To resolve the investigation, the company has agreed to pay a $24 million fine, alongside potential restitution to Austal Limited shareholders. The coordinated effort by the Justice Department and the U.S. Securities and Exchange Commission highlights the critical importance of integrity within defense contracting to national security interests.

According to the Justice Department, “Austal USA engaged in a years-long scheme to illegally inflate its profits on ships the company was building for the U.S. Navy, reporting false financial results to investors, lenders, and its auditors.” The impact of this deceitful behavior, as confirmed by the company’s guilty plea, jeopardized the integrity of defense operations and eroded public trust in military processes.

Legal and Financial Consequences

The fines imposed on Austal USA include a $24 million criminal fine and possible restitution up to $24 million for affected Austal Limited shareholders. The company will also serve a three-year probation period and retain independent compliance oversight. The scheme involved using “program challenges” to conceal rising shipbuilding costs, leading to Austal Limited writing down over $100 million, significantly affecting its stock price.

“Maintaining our national security and military infrastructure cannot come at the cost of the integrity of our contracting processes,” stated U.S. Attorney Sean P. Costello for the Southern District of Alabama. “Today’s actions ensure accountability and promote the rule of law in this critical arena.”

The investigation was conducted by the Naval Criminal Investigative Service (NCIS) and Defense Criminal Investigative Service (DCIS), with support from the Department of Justice’s Office of International Affairs and Australian authorities. Austal USA will continue cooperating with the Justice Department in any ongoing or future inquiries.

The Path Forward

In addition to the fines and restitution, Austal USA has agreed to implement a rigorous compliance and ethics program monitored by an independent entity over the next three years to prevent future misconduct. This oversight aims to restore the integrity compromised by the company’s fraudulent actions.

“Defense contractors that engage in fraud erode the public’s trust in our Armed Forces,” said Director Omar Lopez of the Naval Criminal Investigative Service (NCIS). “NCIS and our investigative partners are determined to hold those accountable whose actions erode that trust. We are committed to rooting out economic crime that negatively impacts the readiness of the Department of the Navy.”

Among the indicted individuals are three former Austal USA executives, Craig Perciavalle, Williams Adams, and Joseph Runkel, facing charges of multiple counts of wire fraud. They await trial, emphasizing the broader repercussions of corporate fraud on individual careers and accountability within the defense industry.

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